TaxTMI 
TaxTMI 
2021 (9) TMI 849
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....ion. 2. The Ld. DRP, Ld. AO and Ld. TPO have finalized their order with improper adjustments, as a result of misapplying the law pertaining to TP and by adopting faulty processes/methodologies to finalize the adjustment, such as but not limited to, applying filters, functional analysis, selection of comparable companies, computation of profit margins of appellant and comparable companies and undertaking economic adjustments. 3. The Ld. DRP and Ld. TPO have erred in passing non-speaking orders, without adjudicating the contentions raised by the Appellant. 4. The Ld. DRP, Ld. AO and Ld. TPO erred in considering Acropetal Technologies Limited as a comparable company: a) When the Appellant has demonstrated that the company is not functionally comparable to the Appellant; b) When the Appellant has demonstrated that the year under assessment is an extra-ordinary year of operations for the company; c) The Ld. DRP failed to provide adequate opportunity to the Appellant to verify and object the information gathered under section 133(6) of the Income-tax Act, 1961. 5. The Ld. DRP, Ld. AO and Ld. TPO erred in introducing additional quantitative filters without rejecting the TP d....
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.... that international transactions with its AE's is at arm's length price. 4. The case was taken up for scrutiny and during the course of assessment proceedings, a reference was made to the Joint Commissioner of Income Tax, Transfer Pricing Officer - 2 to determine arm's length price of international transactions of the assessee with its AE's. During TP proceedings, the TPO has re-characterized TP documentation maintained by the assessee and has applied certain filters including employee cost filter and turnover filter and has excluded 3 comparables from the list of comparables and thus, retained only 2 comparables with arithmetic mean of 33.77%. The assessee has objected for application of employee cost and turn-over filter and has also filed its objections for retaining Acropetal Technologies Ltd., as a comparable, on the ground that it cannot be compared owing to extraordinary year of operation. The TPO, however, was not convinced with explanation furnished by the assessee and according to him, no concrete evidence has been filed to prove financial abnormalities to exclude Acropetal Technologies Ltd., from the list of comparables. As regards, employee cost filter,....
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....essee in light of regulatory action initiated by SEBI on the company, by holding that when the show-cause notice was issued, which relates to financial year 2016-17, it cannot be inferred that allegations have any relevance for the assessment year 2012-13. As regards, application of additional quantitative filters including employee cost filer and multiple year data, the ld. DRP has rejected arguments of the assessee in light of certain judicial precedents and held that as per Rule 10B(4), data which pertains to financial year in which international transactions were undertaken by the tested parties needs to be considered. The use of the word "shall" in the main provision of the Rule makes it clear that in no uncertain terms that the use of current financial year data is a mandatory requirement of law in the comparability analysis under the Indian Transfer Pricing regulations. The proviso to said Rule makes it an exception in allowing the use of data for preceding two years, if and only if, it is proved that such data reveals facts, which could have an influence on the determination of transfer price. Since, the assessee has failed to demonstrate on the basis of contemporaneous doc....
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....lf has included said company in the TP documentation. The ld. AR further referring to the decision of ITAT, Chennai in the case of Bloom Energy India Pvt. Ltd., TS-626-ITAT-2016, submitted that Acropetal Technologies Ltd., cannot be a good comparable owing to the fact that it has abnormal financial reasons and further the SEBI has initiated certain regulatory actions, which may have certain impact on financial results of the company. Therefore, the same cannot be considered to be a good comparable. The ld. AR further submitted that as regards inclusion of Onward Technologies Ltd., as an additional comparable, the assessee has demonstrated with various evidences before the TPO that Onward Technologies Ltd., is functionally similar to the assessee, but the ld. TPO as well as DRP has rejected the arguments of the assessee without any cogent reasons. Therefore, he submitted that directions may be given to the TPO to include Onward Technologies Ltd., as a comparable company. 8. The ld. DR on the other hand strongly supporting order of the DRP/TPO, submitted that when the assessee itself had selected Acropetal Technologies Ltd., as a comparable company by considering the financials for ....
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....e arguments of ld. AR for the assessee for the simple reason that when the assessee claims that subsequent development have a bearing on the financial results of comparable company, it is the duty of the assessee to provide adequate evidence to the AO to verify and object the information gathered by exercising its power u/s. 133(6) of the Act. We, further noted that the ITAT, Chennai in the case of Bloom Energy India Pvt. Ltd., has excluded Acropetal Technologies Ltd., on the ground of abnormal profit margin. In this case, the assessee is seeking exclusion of Acropetal Technologies Ltd., on two grounds; one is on account of abnormal financial results and second is on account of subsequent development of disciplinary proceedings initiated by SEBI. As regards abnormal financial results, it is a well settled principle of law by various decisions of Tribunal that higher profit is not a good ground for exclusion of comparable, when all other functions are similar to the functions performed by an assessee. Therefore on that ground, the arguments of the assessee for exclusion of Acropetal Technologies Ltd., is rejected. As regards allegation of fraud against the company in light of notice....
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....n this case, facts are entirely different, because the assessee is not seeking exclusion of the company on the ground of functional difference, but such exclusion was sought on the basis of extraordinary events of allegation of wrong doing, that too without any evidence to support its case. In our view, the decision of Hon'ble Bombay High Court has no application to the facts of the present case. Therefore, we are of the considered view that there is no merit in arguments of the assessee to exclude Acropetal Technologies Ltd., from the list of comparables and hence, we are inclined to uphold the findings of ld. DRP and reject ground taken by the assessee. 12. As regards inclusion of additional comparables including Onward Technologies Ltd., it was the contention of the assessee that Onward Technologies Ltd., is similar to functions performed by the assessee and it was engaged in product engineering services, which is almost similar to functions performed by the assessee and hence, there is no reason for the AO to reject inclusion of additional comparables. We have gone through the arguments of the ld. AR for the assessee in light of reasons given by the ld. DRP to exclude Onwa....